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For some homeowners, electing to take an adjustable rate mortgage over a fixed rate one can be matter of budgeting. ARMs tend to carry lower mortgage rates and, therefore, lower monthly mortgage payment as compared to a comparable fixed rate loan.

On a $ 250,000 home loan, a 1.02 differential yields a payment savings of $ 149 per month.

ARMs are not for everyone, of course. Over time their rates can change and that can frighten people. An ARM can finish its respective 30-year lifespan with a mortgage rate as much as 6 percentage points higher from where it started. Some homeowners won’t like this.

Other homeowners, however, won’t mind it. For this group, the ARM can be a terrific fit. Especially with the huge, relative discount in today’s pricing.

A few scenarios that should warrant consideration of a 5-year ARM include homeowners that are:

Buying a new home with the intent to sell within 5 years

Currently financed with a 30-year fixed mortgage with plans to sell within 5 years

In addition, homeowners with existing ARMs due for adjustment may want to refinance into a new ARM, if only to push the first adjustment date farther into the future.

Before choosing to go with an ARM, speak with your loan officer about how adjustable rate mortgages work, and their near- and long-term risks. Payment savings may be tempting, but with an ARM, payments are permanent.

1 Comment(s)

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